Second Mortgage and Home Equity
To understand what’s a second mortgage and how it can help you, you first need to learn about home equity. If you have still not paid off your first mortgage on your house, you do not own the whole house, but just a part of it. Whatever amount you’ve paid towards your mortgage, that’s your home equity and that’s what you own.
A second mortgage is nothing but another mortgage on your house. You borrow your home equity to pay for your home renovations, student loan payments, or simply for a vacation. If you have good credit, enough home equity, and if you do not have a lot of debt, you are eligible for a second mortgage and can easily get approved. No matter how fancy it might sound, it’s still a debt.
Although, just like any other mortgage, a second mortgage too, comes with a set of pros and cons. It’s important to identify your needs, compare the benefits to the disadvantages and make an informed decision based on them.
Reasons to Get a Second Mortgage
- For home renovation: taking a second mortgage for home renovations or home improvement projects is so common. Let’s be honest, things are getting expensive day by day and you need every financial help you can get. The idea is not just to renovate the house for the sake of it. Any additions made to your house are an opportunity to increase its market value. The more market value, the better home equity is.
- For personal purchase needs: it’s natural for a person to want to buy something for them or for their family. This might be an item that you cannot afford otherwise, say like a car or take a trip with your family. Even though this is one of the reasons to get a second mortgage, this is rarely used as it does not add value to your home’s market value or equity.
- For paying off another loan or debt: this is one of the most commonly seen reasons for getting a second mortgage. You can use the second mortgage to pay off your primary loan, student loan, credit cards, medical debt, or any other form of debt. Although, we do not usually encourage this as it might add to the debt you already have.
If planned wisely and properly, second mortgages can offer you a lot of benefits and help with your finances. All you need is to have a professional and experienced broker take care of everything for you and guide you through the process. From allowing you to borrow significant loan amounts to getting the lowest interest rates and tax benefits, you can make the best out of second mortgages.